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Value Line’s Global Equity objective group consists of mutual funds that can own stocks from any country in the world. This is very different from the Foreign objective, in that Global funds can own U.S. stocks, while Foreign funds cannot. This is an important distinction about which investors using an asset allocation model should be aware, as the domestic component of a Global fund can throw off certain allocations if the fund’s portfolio isn’t properly accounted for in the larger asset allocation plan.

Still, for some investors who are seeking international exposure but are concerned about the risks of owning a fund that invests exclusively in foreign stocks, a Global fund might work very well. The problem, however, is that many of these funds place a significant amount of their portfolios in U.S. stocks. This can make their portfolios very close in nature to Growth funds that are allowed to invest in foreign markets. Thus, it is important to review a Global fund’s holdings carefully to see if it is a good fit. Moreover, it might make sense to compare a final list of candidates from this objective group against more broadly invested Growth funds.

Funds in the Global objective group are, by design, generally well diversified. In fact, some funds in this group actually use the word “world” in their names to express just how broad is their investment mandate. Despite that broad mandate on the country front, many here take specific investment approaches, such as focusing on small-cap stocks, dividend paying issues, or growth and value investment styles. There are also a number of funds here that are designed to be the sole stock offering in a portfolio. 

Over the long term, the Global Equity objective group has been a good performer relative to the broader market, as measured by MSCI WORLD Index. For the 10-year period ended May 31, 2011, the group had an annualized gain of 4.8%, while the MSCI WORLD Index reported an annualized gain of 3.0%. Over the trailing five-and three-year periods, the group had gains of 3.7% and 0.1%, respectively, while the Index reported a gain of 0.5% and a loss of 3.9%, respectively. During the one-year period ended May 31, 2011, the Global Equity objective group reported a return of 31.0%, compared to a gain of 25.4% for the MSCI WORLD Index. The group has an average Risk Rank of 3, indicating that funds in this group might appeal to many investors, who would only want to accept an average level of risk.

In the year to date through May 31, 2011, the Global Equity objective group outperformed the broader global market as measured by the MSCI WORLD Index, reporting a gain of 6.9% versus a gain of 5.8% for the Index.

One fund with a relatively high year-to-date return through the five months ended May 31, 2011 is Putnam Global Equity Fund A (PEQUX). This fund’s investment objective is capital appreciation and has returned an average of 8.1% since inception. 

It pursues this objective by investing mainly in the common stocks of large and midsized companies in the United States and developed international markets to benefit from global opportunities. The fund includes a blend of both growth and value stocks. Value stocks are those that are trading below the intrinsic value of the company, as determined by fund management. These same stocks may also have potential catalysts believed to cause the stock price to rise. Among the many factors considered are its financial strength, growth potential, competitive position in its industry, projected future earnings, cash flows and dividends. These factors are studied whether the stock candidate is a growth issue or a value stock.

The fund normally invests in developed countries, but may invest in emerging markets. As of March 31, 2011, the fund reported that about 80% of its investments were apportioned as follows: the United States (45%), Japan (9%), France (7%), the United Kingdom (7%), Canada (6%), and Russia (6%), leaving a balance of about 18% to other countries and 2% to cash. The fund may also use derivatives, such as futures, options, foreign currency transactions, warrants, and swap contracts for both hedging and non-hedging purposes.

Another fund with a relatively good year-to-date return through May 31, 2011 is Dreyfus Worldwide Growth Fund A (PGROX). This fund’s objective is to seek long-term capital appreciation consistent with the preservation of capital; current income is a secondary goal. 

To achieve this objective, the fund invests at least 80% of its assets in the common stock of U.S. and foreign companies. Management’s plan is to invest at least 25% of its assets in foreign companies and at least 25% in U.S. companies. It focuses on blue chip multinational corporations with market capitalizations of more than $5 billion. In choosing stocks, the fund uses a “top down” approach and identifies economic sectors that it believes will expand over the next three to five years or longer. It then seeks those companies within these sectors that have demonstrated sustained patterns of profitability, strong balance sheets, and expanding global presence, as well as those that have the potential to achieve predictable, above-average earnings growth. The fund employs a ‘buy-and-hold” investment strategy, characterized by a low portfolio turnover rate, helping to reduce trading costs and minimizes tax liability by limiting the distribution of capital gains. Its targeted turnover rate is 15% per year.

A third fund with very good return through the first five months of 2011 is Delaware Global Value Fund A (DABAX). This fund’s investment objective is long-term capital growth.

The fund invests at least 65% of its assets in equity securities of issuers located around the world, including those based in established or emerging countries. The fund will invest at least 40% of its assets in non-U.S. securities. More than 25% of total assets may be invested in the securities of issuers located in the same country, and it limits investment in emerging markets to 25% of net assets.

Using fundamental analysis, the fund looks for companies that are undervalued, but have potential for improvement that is not yet recognized by the market. The fund’s goal is to assemble a global portfolio of strong companies that have superior business prospects and are priced below their intrinsic values. Management places emphasis on those securities it believes can offer the best long-term appreciation within a three- to five-year horizon. It constructs a portfolio of 60 to 90 holdings meeting their criteria and diversifies investments by company, industry, sector, country, and currency, focusing on macro-level investment themes.

In the table below, we have listed 10 top-performing funds through May 31, 2011 that we follow in our Fund Advisor database.

10 Top Global Equity Funds Performance

Fund Name

Ticker

% Year-to-date

Total Return

% 1 Month

Total

Return

% 3

Month

Total

Return

% 6 Month

Total

Return

% 5 Year

Total

Return

Annualized

Thornburg  Global Opportunities A

THOAX 

14.09

0.87

6.09

23.65

 

Putnam Global Equity A

PEQUX 

12.48

-1.21

4.58

 

21.15

1.80

 

Dreyfus Worldwide Growth A

PGROX 

12.16

-0.34

7.12

18.75

6.02

DWS RREEF Global Infrastructure A

TOLLX 

11.84

0.86

6.98

15.95

 

Delaware Global Value A

DABAX 

11.75

-1.69

3.13

19.67

2.05

Templeton Growth A

TEPLX 

10.79

-1.50

4.56

19.85

0.22

J Hancock3 Global Shareholder Yield A

JGYAX 

10.58

-0.79

6.04

16.68

 

Virtus Global Infrastructure A

PGUAX 

10.61

-0.32

4.43

16.08

7.29

Mainstay Epoch Global Equity Yield

EPSIX 

10.73

-0.73

6.15

16.81

 

Pax World Growth

 

PXWGX 

10.40

-0.44

3.53

17.42

4.55

Global Equity Objective Group

 

6.90

-1.73

2.34

13.85

3.67

 

 

 

At the time of this article's writing, the authors did not have positions in any of the companies mentioned.